Escalating Land Values At Root Of Upward Spiral In New-home Prices

WASHINGTON — If you've wondered why the prices of new homes have continued to spiral upward, despite relatively low inflation in the national economy overall, look to one key factor: land values.

A soon-to-be-released study of residential land prices in 30 metropolitan housing markets reveals that the average value of undeveloped residential acreage has jumped at twice the pace of inflation during the past 60 months.

In some high-growth markets, land values for housing have risen by more than 200 percent since l980, according to the Washington, D.C.-based Urban Land Institute. The national average residential land-price increase during those 60 months was 51.3 percent per acre. The Consumer Price Index (CPI), by comparison, rose 26 percent in the same period.

Cities with strong, fast-expanding high-tech employment bases have seen land values go off the charts in some cases, according to the twice-per-decade study. Raleigh, N.C., topped the nation with a 213.7 percent five-year growth in the value of raw residential acreage. Investors who bought an average- priced parcel of undeveloped land in metropolitan Raleigh for $3,250 per acre in l975 could sell it for $20,000 an acre last month (an appreciation in excess of 500 percent), according to ULI's research.

Raw land in metropolitan Hartford, Conn., more than doubled in the past 60 months -- up 108 percent, from $7,250 an acre in 1980 to $15,000 in l985. Other big gainers on the national land-inflation charts included Boulder, Colo. (100 percent in five years); Phoenix, Ariz., and Charlotte, N.C. (91 percent); metropolitan Boston, Mass. (85 percent), and Atlanta, Ga. (78 percent).

Land-price inflation in some high-tech, high-gainer areas of the 1970s slowed down the past few years, according to ULI's study, but still pushed housing prices hard. San Jose, Calif. -- the microchip mecca of the West Coast -- registered a mere 29 percent growth rate in residential land values between l980 and l985. When added to the 582 percent average growth in per-acre values the previous five years, however, San Jose jumps into first place nationwide for sustained land inflation during the decade.

But high gains in land values, emphasized ULI vice president J. Thomas Black, ''are not necessarily good news,'' especially from the point of view of new-home buyers, home builders, employers and future economic growth for the metropolitan areas. Rapid run-ups in land prices can be signs that local government policies are making prime land more difficult to develop for housing through zoning practices, high fees and other growth-control restrictions, he said.

High housing-land costs, in turn, will ''inevitably hold down growth in the coming years,'' according to Black. Employers who might otherwise have expanded in the area will shift to less-costly cities in the Northeast. Employees who might otherwise have been transferred to Boston will end up elsewhere, the direct result of superheated land inflation.

Today's hot land markets, in fact, are almost certainly fated to cool off in the coming five years. Portland, Ore., and Miami, Fla., for instance, were among the top gainers in ULI's last study five years ago. Portland had registered a 120 percent average gain in value per acre, and Miami ll3 percent. The past 60 months, Portland lots in the ULI study registered no increase in value, and Miami parcels gained just 20 percent.